Archive for August, 2011

Debt Ceiling: The Debate

August 11, 2011 Leave a comment

Ongoing debates in Washington over how to remedy the $14.3 trillion debt ceiling are getting closer and closer to the August 2nd deadline. If both Democratic and Republican party members cannot come to an agreement by the deadline, the United States will have exceeded its legal borrowing limit and will not be able to satisfy its financial obligations.

Normally, the nation responds to reaching its borrowing limit by raising the debt ceiling and going about business as usual. Republicans are calling for a hike in the debt ceiling to be offset by trillions in spending cuts. On the other side, the Democrats say that the Republicans need to accept some tax increases to support the spending cuts. In keeping with their usual stance on the issue, Republicans refuse to support tax increases.

Washington is looking for changes in the tax code affecting hedge funds, private equity firms, and real estate partnerships as a way to make new revenue. If these changes were made, it’s estimated that $20 billion could be raised over 10 years.

House Republican Majority Leader Eric Cantor has earned some of his own celebrity on this subject. He has been very vocal about his opposition to the changes in the tax code affecting the financial industries. He also is staunchly against any tax increases.  This anti-tax sentiment is blamed on the tea party movements but some Democrats say that the long standing relationship between managers in the financial sector and House Republicans is where the sentiment actually comes from.

People against Cantor’s viewpoint are quick to point out where his campaign funds originate from. Cantor has been supported greatly by real estate, securities and investment sectors; their support has doubled within 2 years to over $1.8 million.

With the deadline looming and the debate growing increasingly partisan, the debate has been heating up. Majority Leader Cantor and President Obama have exchanged spats during debates.

Timing of the plans, beside the looming deadline, is also affecting the negotiations because the timing of the plans are very different.

Senate Majority Leader Harry Reid, a Democrat from Nevada, proposes a plan that would raise the debt ceiling enough so that it wouldn’t have to be considered again until 2013. Not having to reconsider it until 2013 is beyond the elections of 2012 and demanded to be so by President Obama.

Reid’s plan will include over $1 trillion in spending cuts of governmental agencies operating budget and another $1 trillion in savings from minimizing the wars in Iraq and Afghanistan.

House Speaker John Boehner, with the support of Majority Leader Cantor, proposes a Republican plan enough to get through the August 2nd deadline, but would only last about six months. The White House has already vowed to veto this plan if it makes it to President Obama.

With both parties in a headlock over plans to fix the debt ceiling, it is unknown yet if they will reach a bi-partisan agreement by their deadline.